PPIP is on the Rocks -- Public-Private Investment Program for Legacy Assets

The Public-Private Investment Program for Legacy Assets (PPIP)is on the rocks.

In an effort to save the plan, Treasury is making it easier for funds and private investors to participate in its plan to buy up banks' bad assets (PPIP). These rule changes make it clear that interest on the part of large hedge funds is either not big enough, or not wanted.

This should come us no surprise. Asking savvy investors to pay a premium for potentially non-marketable assets goes against the grain of smart investors. Asking hedge fund investors to pay a premium to the market also goes against standard operating procedures at these firms. Other possible hang ups include, the insistence by the Treasury that firms be able to demonstrate the ability to raise $500 million in new capital. And, the limitation that only firms experienced in investing in mortgage backed securities could bid on the distressed assets.

New proposals call for lowering the $10 billion threshold for qualified bidders, and allowing small and women- and minority-owned firms to participate in the plan by partnering with large, qualified, firms. I am scratching my head on this one.

An additional problem could be the current mistrust of the government on the part of financial firms. With the shadow of Congress lurking in the background, investors have to ask themselves--will they change the rules in the middle of the game?

One has to wonder why large hedge funds would want to get involved with the government given the state of affairs in Washington. Funds could be opening themselves to all kinds of problems if they decide to play.

The clearest sign that the plan isn't working is the extension of the deadline to apply by two weeks.

If this plan fails it is likely to lead to a blood bath in the stock market. Investors should recall that the market rallied sharply on both the hints about this plan and after the plan was announced.

Subscribe to All American Investor via Email

Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

Follow All American Investor on Twitter

Is Betting Against Hedge Funds a Good Idea?

Geoffrey Rogow is reporting that equities traders are getting ready to purchase shares in companies that hedge funds are betting against. The idea here is to catch hedge funds that are facing redemptions and riding the tide with them as they cover. It is short term gain strategy. But, is this really any different than what equity traders do on a daily basis--go with the flow and then get out. On the other hand, many traders are well aware of which stocks hedge funds have been shorting in size. So this proprietary information could be put to good use.
Or will sharp hedge funds take advantage of the equity traders by pulling a reverse? Interesting game to be played.

The one problem with this scenario? The selling related to redemptions may have exhausted itself. Derivatives analysts at Credit Suisse estimated this week that about 80% the excess trading in the market in the last few months of the year was related to redemptions and hedge-fund deleveraging, and based on the decline in volatility and the reduced volume, the excess trading may be subsiding. “This might be another sign that we’re nearing the end of the selling cycle,” they write.

“One day I was trading a stock and it was just ripping. There was no reason whatsoever, but I called around and it was that all the hedge funds were shorting and had to cover [for redemptions],” said Dave Rovelli, managing director of U.S. equity trading for Canaccord Adams.

Betting on Bad Amid Hedge Fund Redemptions

Subscribe to All American Investor via Email

The latest in Financial Infotainment--Minyanville

A friend of mine sent me a link to this website, Minyanville. The site is will worth visiting. Informative and entertaining. The stuff on China, subprime loans and trading is thought provoking. Chances are good you will be sending this link along to your freinds.


Some examples of the headline stories.

Fire in the Hole!
Todd Harrison
...as yesterday’s false alarm once again proved, structural smoke won’t matter until someone actually sees a fire.

Testing the Waters of Intel
Jeff Macke
Plucking at the strings of lunacy, trying to find something valid enough to trade off, thus becomes a somewhat futile exercise...

Stocks To Watch: Dell, eBay, Ford, IBM, Sysco
Minyanville Staff
Today's top stories and some stocks with potential to move...

Bear Stearns' Hedge Fund Mess
Bennet Sedacca
Brokerage paper has been widening relative to Treasuries of late, but so has everything else, as perhaps it should.

The Market's Remarkable Symmetry
The market may have an agenda higher in terms of time and price, but... there are many clusters of time, price and pattern projecting a turning point in this neighborhood.


Subscribe to Robert T DeMarco Weblog by Email